Letang Corporation expects an EBIT of $20,750 every year forever. The company cu

Question

Letang Corporation expects an EBIT of $20,750 every year forever. The company currently has no debt, and its cost of equity is 16 percent. The company can borrow at 9 percent and the corporate tax rate is 35.

What is the current value of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

(a) What will the value of the firm be if the company takes on debt equal to 60 percent of its unlevered value? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

(b) What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

(a) What will the value of the firm be if the company takes on debt equal to 60 percent of its levered value?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

(b) What will the value of the firm be if the company takes on debt equal to 100 percent of its levered value?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Letang Corporation expects an EBIT of $20,750 every year forever. The company currently has no debt, and its cost of equity is 16 percent. The company can borrow at 9 percent and the corporate tax rate is 35.

Explanation / Answer

Letang Corporation expects an EBIT of $20,750 every year forever. The company cu

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